April15, 2010

HOUSTON By day, business owner Paul Magaziner runs a large printing company off Richmond Avenue in Houston, located squarely along a route the Metropolitan Transit Authority wants to build a new light rail line through.

During his nights and weekends, Magaziner often burns the midnight oil from his second floor war room, pouring through thousands of pages of complex financial documents Metro released in response to public information requests.

One afternoon late last year, with files from Metro pouring off his office desk, Magaziner and fellow area business owner Gayla Hamilton say they discovered what they say is a multi-billion dollar lie Metro told to the federal government.

They're in a trap they literally can't get out of. A financial trap, Magaziner said of Metro. I find it very difficult that this was an honest mistake. It's impossible.

He is referring to how Metro is slated to received $900 million from the Federal Transit Administration to help kick off the expansion of five new light rail lines.

The only problem?

Magaziner claims to help qualify for the funding, Metro lied.

Whats more, Magaziner says taxpayers throughout the Houston region may have to pay a large price for it all and may keep paying for years to come.

It's going to be devastating, he said.

So what are they both talking about?

It all dates back to November of 2009, when Metro filed an application for that $900 million. Magaziner says to qualify for that grant, Metro had to prove to the FTA that it could afford to build all five lines of its proposed light rail expansion. Just proving it could afford three, or four lines was not an option he says, pointing to Metros own statements in its federal filing.

But he says Metro knew full well it could not afford to build all five lines, but instead, he claims, tried to fool the federal government into thinking it would be possible. Metro did that, he says, by replacing newer,more up to date financial forecasts for sales tax revenue with older outdated information created back in 2008 before the financial crash ever took place.

Metro posted this supposedly new, supposedly conservative financial plan, but they were using 2008 sales tax figures, which reflected much more income than the figures from 2009 would show. Hamilton said. They were defrauding the federal government and the taxpayers.

Magaziner and Hamilton both point to how Metro had the downgraded forecasts in hand for months prior to when they filed that November 2009 application.

U.S. Congressman Ted Poe and his staffers reviewed the documents in question.

They used the old books! It's deceitful. It's wrong, Poe said. The books are cooked.

Poe says the documents he reviewed led him to a clear conclusion.

It comes across to me as trying to defraud the federal government, he said.

Poe made those statements after KHOU informed him that the author of both the 2008 and 2009 financial forecasts for Metro also believed Metro should have shared his most recent report with the federal government.

The feds ought've been given the updated numbers, said University of Houston economist Dr. Barton Smith, who has been predicting sales tax revenue numbers for Metro for about 15 years.

Smith says his 2008 pre-crash report that Metro used in its application for federal grant money does not come close to representing the financial reality on the ground in Houston today.

We were just going along, it was growth, growth, growth, Smith said of the summer of 2008, when the stock market was still booming.

However one year later in June of 2009, five months before Metro filed that application with the FTA, Smith handed over a new prediction to Metro officials.

And all of a sudden it was like the rug was pulled out from under the sales tax base, he said.

The large difference between the two forecasts can be understood more easily by looking at just the next few years, where Smith says you can clearly see his latest report predicts a lot less tax revenue.

For instance, for 2010 alone he predicts a $95 million drop in sales tax revenue from the forecast Metro passed on to the federal government.

And for 2011 he foresees a $127 million drop from his pre-crash prediction.

For 2012 he predicts another $142 million less, downgrading his forecast for Metro from receiving $680 million in sales tax revenue to just $538 million.

In fact, for the next 15 years combined, Smith downgraded his tax revenue projection by $2.4 billion, but KHOU discovered Metro never shared that information with the federal government.

Magaziner tried to blow the whistle on the problem in a public Metro board meeting in January of 2010.

You've overestimated by billions on sales tax from 2010 on. Billions, he told Metros board. Between 2010 to 2012 you're off $300 million just in the 3 years.

Then Metro Board Chairman David Wolff rebuffed it all in his response.

I doubt that's the case, Wolff said. We've gone over these numbers carefully. We've adjusted them. We met just yesterday to review them.

But this week when KHOU asked the Federal Transit Authority about it all, the FTA confirmed that even now in April of 2010, the most up to date sales tax revenue forecasts Metro had given them came from back in June of 2008.

Congressman Poe worries about how you the taxpayer may end up footing the bill for it all.

Down the road, Metro's gonna come and say, 'Oh well, we don't have the money to finish this project, he predicts. We need another penny, two cents on the sales tax to make the poor taxpayers in the Houston area pay for this project we started. We gave bad information to the federal government. We need more taxpayer money. All of that is fraud and deceit. The FBI should be involved.

Metro did not respond to KHOUs repeated requests to interview Metro CEO Frank Wilson on- camera for this story.

Instead, on Wednesday Metro sent KHOU a written statement saying they did not send the FTA the most updated forecasts they had, because, METRO was not asked to update sales tax revenues in November 2009.

By Thursday, however, a top Metro executive said that they didnt send the updated forecasts because they claim the FTA signed off on their use of the older information as a part of their application.

However, the FTA seems to disagree with Metros claim. FTA spokesperson Paul Griffo said, FTA will not commit taxpayer dollars to a project based on outdated data.

The Federal Transit Administration backed that statement up by taking action late Wednesday, and asking Metro to hand over the most updated sales tax revenue forecasts it has received. A Metro official confirms they complied and sent the federal government Smiths report from 2009 for the first time.

Finally, as a result of our investigation, another U.S. Congressman, John Culberson, is calling on Houston Mayor Annise Parker and the newly installed Metro board to clean the situation up, calling it waste and mismanagement. --It's something Culberson says has plagued Metro for years.